SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarter Ended June 30, 1998
Commission File Number
0-9811
BFC FINANCIAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Florida 59-2022148
----------------------- ---------------------------------------
(State of Organization) (I.R.S. Employer Identification Number)
1750 E. Sunrise Boulevard
Ft. Lauderdale, Florida 33304
--------------------------------------- ----------
(Address of Principal Executive Office) (Zip Code)
(954) 760-5200
Registrant's telephone number, including area code
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate the number of shares outstanding for each of the Registrant's classes
of common stock, as of the latest practicable date:
Class A common stock of $.01 par value, 6,453,994 shares outstanding.
Class B common stock of $.01 par value, 2,355,407 shares outstanding.
<PAGE>
BFC Financial Corporation and Subsidiaries
Index to Consolidated Financial Statements
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Statements of Financial Condition as of June 30,
1998 and December 31, 1997 - Unaudited
Consolidated Statements of Operations for the six and three
months ended June 30, 1998 and 1997 - Unaudited
Consolidated Statements of Stockholders' Equity for the six
months ended June 30, 1998 and 1997 - Unaudited
Consolidated Statements of Cash Flows for the six months ended
June 30, 1998 and 1997 - Unaudited
Notes to Unaudited Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Financial Condition
June 30, 1998 and December 31, 1997
(in thousands, except share data)
(Unaudited)
Assets
1998 1997
---- ----
Cash and cash equivalents $ 1,084 604
Securities available for sale 912 1,478
Investment in BankAtlantic Bancorp, Inc. ("BBC") 80,090 72,185
Mortgage notes and related receivables, net 1,791 1,859
Investment real estate 6,630 9,700
Real estate held for development and sale, net 5,255 6,474
Other assets 4,370 6,571
-------- ------
Total assets $100,132 98,871
======== ======
Liabilities and Stockholders' Equity
Subordinated debentures, net 6,994 7,263
Deferred interest on subordinated debentures 2,232 2,106
Mortgage payables and other borrowings 16,207 22,943
Other liabilities 773 706
Deferred income taxes 14,583 11,711
-------- ------
Total liabilities 40,789 44,729
Stockholders' equity:
Preferred stock of $.01 par value; authorized
10,000,000 shares; none issued -- --
Class A common stock of $.01 par value,
authorized 20,000,000 shares; issued and
outstanding 6,453,994 shares in 1998 and 1997 58 58
Class B common stock, of $.01 par value; authorized
20,000,000 shares; issued and outstanding
2,351,407 in 1998 and 2,346,907 in 1997 21 21
Additional paid-in capital 26,141 23,525
Retained earnings 33,041 30,280
-------- ------
Total stockholders' equity before BBC
accumulated other comprehensive income 59,261 53,884
BBC accumulated other comprehensive income -
net unrealized appreciation on securities
available for sale, net of deferred income taxes 82 258
-------- ------
Total stockholders' equity 59,343 54,142
-------- ------
Total liabilities and stockholders' equity $100,132 98,871
======== ======
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Operations
For the six and three months ended June 30, 1998 and 1997
(in thousands, except per share data)
(Unaudited)
Six months Three months
ended June 30, ended June 30,
-------------- --------------
1998 1997 1998 1997
---- ---- ---- ----
Revenues:
Interest on mortgage notes and
related receivables $ 106 112 53 56
Interest and dividends on securities
available for sale and escrow accounts 129 255 58 97
Earnings on real estate rental
operations, net 406 521 165 241
Sale of real estate 3,717 149 3,717 --
Net gain from sale of stock -- 1,349 -- 1,128
Equity in earnings of BBC 4,459 5,772 2,404 2,954
Other income, net 14 198 3 12
------ ------ ----- ------
Total revenues 8,831 8,356 6,400 4,488
------ ------ ----- ------
Costs and expenses:
Interest on subordinated debentures 258 440 130 193
Interest on mortgages payable
and other borrowings 858 1,037 406 523
Cost of sale of real estate 2,380 18 2,380 1
Expenses related to real estate held
for development and sale, net 71 88 30 51
Write-down of investment 184 -- 184 --
Employee compensation and benefits 566 587 278 282
Occupancy and equipment 21 20 11 11
Reversal of provision for litigation -- (2,272) -- (2,272)
General and administrative, net 436 620 226 327
------ ------ ----- ------
Total cost and expenses 4,774 538 3,645 (884)
------ ------ ----- ------
Income before income taxes
and extraordinary items 4,057 7,818 2,755 5,372
Provision for income taxes 1,313 2,537 1,002 2,247
------ ------ ----- ------
Income before extraordinary items 2,744 5,281 1,753 3,125
Extraordinary items:
Gain from debt restructuring, net of
income taxes of $114,000 for the
six and three months ended
June 30, 1997 -- 181 -- 181
Gain from extinguishment of debt,
net of income taxes of $10,000 for the
six and three months ended
June 30, 1998 17 -- 17 --
Gain on settlements of litigation,
net of income taxes of $373,000
and $303,000 for the six and three months
ended June 30, 1997 -- 600 -- 483
------ ------ ----- ------
Net income $2,761 6,062 1,770 3,789
====== ====== ===== ======
Basic earnings per share:
Before extraordinary items $ 0.35 0.67 0.22 0.39
Extraordinary items -- 0.10 -- 0.08
------ ------ ----- ------
Net income $ 0.35 0.77 0.22 0.47
====== ====== ===== ======
Diluted earnings per share:
Before extraordinary items $ 0.30 0.62 0.19 0.37
Extraordinary items -- 0.09 -- 0.08
------ ------ ----- ------
Net income $ 0.30 0.71 0.19 0.45
====== ====== ===== ======
Basic weighted average shares outstanding 7,950 7,928 7,952 7,949
====== ====== ===== ======
Diluted weighted average shares outstanding 9,210 8,537 9,161 8,559
====== ====== ===== ======
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
For the six months ended June 30, 1998 and 1997
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Addi-
Compre- Class A Class B tional
hensive Common Common Paid-in Retained
income Stock Stock Capital Earnings Other Total
------ ----- ----- ------- -------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1996 $ -- 21 20,610 20,520 311 41,462
Comprehensive income
Net income $ 6,062 -- -- -- 6,062 -- 6,062
Other comprehensive income,
net of tax:
Unrealized gain on securities
available for sale 312 -- -- -- -- -- --
Reclassification adjustment
for gains and losses included
in net income (216) -- -- -- -- -- --
-----
Other comprehensive income 96 -- -- -- -- -- --
-----
Comprehensive income $ 6,158 -- -- -- -- -- --
=====
Net effect of other BBC
capital transactions -- -- (1,356) -- -- (1,356)
Change in BBC net unrealized
appreciation on securities
available for sale-net of
deferred income taxes -- -- -- -- 96 96
Exercise of stock options -- -- 156 -- -- 156
-------- -------- -------- -------- -------- --------
Balance at
June 30, 1997 $ -- 21 19,410 26,582 407 46,420
======== ======== ======== ======== ======== ========
Balance at
December 31, 1997 58 21 23,525 30,280 258 54,142
Comprehensive income
Net income $ 2,761 -- -- -- 2,761 -- 2,761
Other comprehensive income,
net of tax:
Unrealized gain on securities
available for sale 72 -- -- -- -- -- --
Reclassification adjustment
for gains and losses included
in net income (248) -- -- -- -- -- --
-----
Other comprehensive income (176) -- -- -- -- -- --
-----
Comprehensive income $ 2,585 -- -- -- -- -- --
=====
Net effect of other BBC
capital transactions, net of
deferred income taxes -- -- 2,582 -- -- 2,582
Change in BBC net unrealized
appreciation on securities
available for sale-net of
deferred income taxes -- -- -- -- (176) (176)
Exercise of stock options -- -- 34 -- -- 34
-------- -------- -------- -------- -------- --------
Balance at
June 30, 1998 $ 58 21 26,141 33,041 82 59,343
======== ======== ======== ======== ======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For the six months ended June 30, 1998 and 1997
(In thousands)
(Unaudited)
June 30,
--------
1998 1997
---- ----
Operating activities:
Income before extraordinary items $ 2,744 5,281
Adjustments to reconcile income before extraordinary
items to net cash (used in) operating activities:
Equity in earnings of BBC (4,459) (5,772)
Depreciation 320 342
Expenses related to real estate held for
development and sale, net 71 89
Increase in deferred income taxes 1,313 2,537
Amortization on subordinated debentures 5 8
Accretion of discount on loans receivable (22) (22)
Increase in real estate development
and construction costs (1,075) --
Gain on sale of real estate, net (1,337) (131)
Net gain from sale of stock -- (1,349)
Fundings for litigation settlement -- (1,801)
Reversal of provision for litigation -- (2,272)
Increase in the escrow for called
debenture liability -- (5,123)
Proceeds from escrow for called
debenture liability 2,161 --
Increase in deferred interest on
subordinated debentures 252 380
Accrued interest income on escrow accounts (66) (128)
Interest accrued regarding called
debenture liability -- 52
Increase in other liabilities 11 67
Decrease (increase) in other assets (97) 116
------- -------
Net cash (used in) operating activities (179) (7,726)
------- -------
Investing activities:
Proceeds from the sales of investment real estate -- 131
Proceeds from the sale of BBC common stock -- 3,720
Common stock dividends received from BBC 581 449
Purchase of securities available for sale (4,827) (15,081)
Proceeds from redemption and maturities
of securities available for sale 5,390 17,337
Principal reduction on mortgage notes and
related receivables, net 90 90
Decrease (increase) in real estate held for development
and sale, net 3,239 (126)
Improvements to investment real estate (83) --
------- -------
Net cash provided by investing activities 4,390 6,520
------- -------
Financing activities:
Issuance of common stock 18 92
Increase in borrowings -- 9,144
Repayments of borrowings (3,749) (9,391)
------- -------
Net cash (used in)
financing activities (3,731) (155)
------- -------
Increase (decrease) in cash and cash equivalents 480 (1,361)
Cash and cash equivalents at beginning of period 604 1,796
------- -------
Cash and cash equivalents at end of period $ 1,084 435
======= =======
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
BFC Financial Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
June 30, 1998
1. PRESENTATION OF INTERIM FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements have been prepared
by BFC Financial Corporation (the "Company" or "BFC") in accordance with the
accounting policies described in its 1997 Annual Report and should be read in
conjunction with the notes to the consolidated financial statements which appear
in that report.
In the opinion of management, the accompanying financial statements contain such
adjustments as are necessary to present fairly the Company's unaudited
consolidated statements of financial condition at June 30, 1998 and December 31,
1997, the unaudited consolidated statements of operations for the six and three
months ended June 30, 1998 and 1997, the unaudited consolidated statements of
stockholders' equity for the six months ended June 30, 1998 and 1997 and the
unaudited consolidated statements of cash flows for the six months ended June
30, 1998 and 1997. Such adjustments consisted only of normal recurring items.
The unaudited consolidated financial statements and related notes are presented
as permitted by Form 10-Q and should be read in conjunction with the notes to
consolidated financial statements appearing in the Company's Annual Report on
Form 10K for the year ended December 31, 1997. Certain prior year balances have
been reclassified to conform with the 1998 presentation.
2. INVESTMENT IN BANKATLANTIC BANCORP, INC.
A reconciliation of the carrying value in BankAtlantic Bancorp, Inc. ("BBC") to
BBC stockholders' equity at June 30, 1998 and December 31, 1997 is as follows
(dollars in thousands):
June 30, December 31,
1998 1997
---- ----
BBC stockholders' equity $ 255,251 207,171
Ownership percentage 31.83% 35.57%
--------- --------
81,236 73,691
Purchase accounting adjustments (1,146) (1,506)
--------- --------
Investment in BBC $ 80,090 72,185
========= ========
At June 30, 1998, the Company owned 6,578,671 shares of BBC Class A Common Stock
and 4,876,124 shares of BBC Class B Common Stock representing 31.83% of all
outstanding BBC common stock. At June 30, 1998, the Company's ownership of BBC
Class A and B common stock was approximately 26% and 47%, respectively. The
aggregate market value of the Company's investment in BBC at June 30, 1998 was
approximately $140.5 million or approximately $60.4 million in excess of the
carrying value in the financial statements.
On June 30, 1998 BBC acquired Ryan, Beck & Co., Inc. ("RBCO"), an investment
firm that is principally engaged in the underwriting, distribution and trading
of tax-exempt obligations and bank and thrift equity and debt securities. During
the six months ended June 30, 1998, BBC issued 2,863,367 shares of Class A
common stock to acquire RBCO. Upon acquisition of RBCO, BBC assumed all options
outstanding under RBCO's existing stock option plans, resulting in the issuance
of options to purchase 314,145 shares of Class A common stock at various
exercise prices based upon the exercise prices of the assumed options. The RBCO
acquisition agreement provided for the establishment of an incentive and
retention pool, under which shares of BBC's Class A common stock representing
20% of the total transaction value were allocated to key employees of RBCO. The
retention pool consists of 683,362 shares of restricted Class A common stock,
which will vest in four years to employees who remain for the period. As of June
30, 1998, BFC's ownership percentage of BBC excluded the 683,362 shares of
restricted Class A common stock.
On March 20, 1998, BBC acquired Leasing Technology Inc. ("LTI"), a company
engaged in the equipment leasing and finance business. BBC issued 718,413 shares
of Class A common stock to acquire LTI. Upon regulatory approval, on June 30,
1998, BBC transferred LTI to BankAtlantic at BBC's cost.
Pursuant to previously announced plans by BBC to purchase shares of its common
stock, during the six months ended June 30, 1998, BBC paid $10.6 million to
repurchase and retire 738,500 shares of Class B common stock.
During the six months ended June 30, 1998, BBC issued 505,793 shares of Class A
common stock upon the conversion of $3.3 million in principal amount of BBC's 6
3/4% Convertible Subordinated Debentures due 2006.
3. SECURITIES AVAILABLE FOR SALE
The composition of securities available for sale at June 30, 1998 and December
31, 1997 is as follows (in thousands):
June 30, December 31,
1998 1997
---- ----
U.S. Treasury Bills $ 505 1,072
Investment in preferred stock 343 343
Other 64 63
------ -----
$ 912 1,478
====== =====
Market value at June 30, 1998 and December 31, 1997 approximated book value.
4. CONSOLIDATED STATEMENTS OF CASH FLOWS
Other non-cash financing and investing activities and other supplemental cash
flow items for the six months ended June 30, 1998 and 1997 were as follows (in
thousands):
June 30,
--------
1998 1997
---- ----
Change in stockholders' equity resulting
from the Company's proportionate share
of BBC's net unrealized appreciation
(depreciation) on securities available
for sale, net of deferred income taxes (176) 96
========= =========
Transfers from escrow accounts to reflect
payments on the called debenture liability 200 10,535
========= =========
Net effect of other BBC capital transactions,
net of income taxes 2,582 (1,356)
========= =========
Net gain on debt restructuring, net of income taxes -- 181
========= =========
Net gain associated with the settlements
of the litigation, net of income taxes -- 600
========= =========
Net gain from extinguishment of debt,
net of income taxes 17 --
========= =========
BBC's dividends on common stock
declared and received in subsequent period 291 221
========= =========
Increase in equity for the tax effect related to
the exercise of stock options 16 64
========= =========
Deferred profit recognized 316 --
========= =========
Conversion of mortgage receivable to an
equity interest in an affiliated partnership -- 184
========= =========
Interest paid on borrowings 872 1,113
========= =========
5. SUBORDINATED DEBENTURES
Included in subordinated debentures at June 30, 1998 and December 31, 1997 was
approximately $5.4 million and $5.5 million, respectively, of debentures that
have been called. Such debentures do not bear interest. Included in other assets
at June 30, 1998 and December 31, 1997 was approximately $2.8 million and $5.0
million held in escrow accounts related to a portion of these called debentures.
In January 2000, any amounts remaining in escrow will be released to the Company
and after that date any payments on called debentures will be paid directly by
the Company.
6. COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board ("FASB") issued FASB
Statement No. 130 ("FAS 130") "Reporting Comprehensive Income". The statement
became effective for the Company on January 1, 1998 with the reclassification of
earlier period financial statements for comparative purposes. Comprehensive
income is the change in equity of a business enterprise during a period from
transactions and other events and circumstances from nonowner sources. Some of
the items included in other comprehensive income are unrealized gains or losses
on securities available for sale, foreign currency translations, underfunded
pension obligations and employee stock options. Implementation of FAS 130
required additional disclosure in the Company's financial statements but had no
impact on the Company's Statement of Financial Condition or Statement of
Operations.
7. EARNINGS PER SHARE
The following table reconciles the numerators and denominators of the basic and
diluted earnings per share computations for the six and three months ended June
30, 1998 and 1997 (in thousands, except per share data):
Six months ended Three months ended
June 30, June 30,
-------- --------
1998 1997 1998 1997
---- ---- ---- ----
Basic Numerator:
Net income available
for common shareholders $2,761 6,062 1,770 3,789
====== ===== ===== =====
Basic Denominator
Weighted average shares
outstanding 7,950 7,928 7,952 7,949
====== ===== ===== =====
Basic earnings per share $ .35 .77 .22 .47
====== ===== ===== =====
Diluted Numerator:
Dilutive net income available
to common shareholders $2,761 6,062 1,770 3,789
====== ===== ===== =====
Diluted Denominator
Basic weighted average shares
outstanding 7,950 7,928 7,952 7,949
Options 1,260 609 1,209 610
------ ----- ----- -----
Diluted weighted average shares
outstanding 9,210 8,537 9,161 8,559
====== ===== ===== =====
Diluted earnings per share $ .30 .71 .19 .45
====== ===== ===== =====
The Company has two classes of common stock outstanding. The two-class method is
not presented because the company's capital structure does not provide for
different dividend rates or other preferences, other than voting rights, between
the two classes.
<PAGE>
BFC Financial Corporation and Subsidiaries
Management's Discussion and Analysis of Results
of Operations and Financial Condition
General
BFC Financial Corporation (the "Company" or "BFC") is a savings bank holding
company which owns approximately 31.83% of the outstanding common stock of
BankAtlantic Bancorp, Inc. ("BBC"). BBC is the holding company for BankAtlantic,
A Federal Savings Bank ("BankAtlantic") and owns 100% of its outstanding common
stock.
Except for historical information contained herein, the matters discussed in
this report contain forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, that involve substantial risks and
uncertainties. When used in this report, the words "anticipate", "believe",
"estimate", "may", "intend", "expect" and similar expressions identify certain
of such forward-looking statements. Actual results could differ materially from
these forward-looking statements. These forward-looking statements are based
largely on the Company's expectations and are subject to a number of risks and
uncertainties, including but not limited to, economic factors (both generally
and particularly in areas where the Company or its subsidiaries operate or hold
assets), interest rates, competitive and other factors affecting the Company's
operations, markets, products and services, expansion strategies and other
factors discussed elsewhere in this report and the documents filed by the
Company with the Securities and Exchange Commission. Many of these factors are
beyond the Company's control.
Results of Operations
The Company's basic and diluted earnings per share were $0.22 and $0.19 for the
quarter ended June 30, 1998, compared to $0.47 and $0.45 for the comparable
period in 1997. The 1997 period included an extraordinary gain of $0.08 basic
and diluted earnings per share.
The Company's basic and diluted earnings per share were $0.35 and $0.30 for the
six months ended June 30, 1998, compared to $0.77 and $0.71 for the comparable
period in 1997. The 1997 period included an extraordinary gain of $0.10 basic
and $.09 diluted earnings per share.
For the quarter ended June 30, 1998, the Company reported net income of
approximately $1.8 million as compared to net income of approximately $3.8
million for the comparable period in 1997. Operations for the quarter ended June
30, 1998 and 1997 included extraordinary gains of approximately $17,000 and
$664,000, respectively. The 1998 extraordinary gain, net of income taxes was due
to extinguishment of debt. The 1997 extraordinary gains, net of income taxes was
due to debt restructuring of approximately $181,000 and a gain on settlements of
litigation of approximately $483,000.
For the six months ended June 30, 1998, the Company reported net income of
approximately $2.8 million as compared to net income of approximately $6.1
million for the comparable period in 1997. Operations for the six months ended
June 30, 1998 and 1997 included extraordinary gains of approximately $17,000 and
$781,000, respectively. The 1998 extraordinary gain, net of income taxes was due
to extinguishment of debt. The 1997 extraordinary gains, net of income taxes was
due to debt restructuring of approximately $181,000 and a gain on settlements of
litigation of approximately $600,000.
Increases (decreases) in revenues for the six and three month periods ended June
30, 1998, as compared to the comparable periods in 1997 were as follows (in
thousands):
Six Three
Months Months
------- ------
Interest on mortgage notes and
related receivables $ (6) (3)
Interest and dividends on securities
available for sale and escrow accounts (126) (39)
Earnings on real estate rental operations, net (115) (76)
Sale of real estate 3,252 3,401
Net gain from sale of BBC common stock (1,033) (812)
Equity in earnings of BBC (1,313) (550)
Other income, net (184) (9)
------- ------
Increase in total revenues $ 475 1,912
======= ======
Interest and dividends on securities available for sale and escrow accounts
decreased for the six and three month periods ended June 30, 1998, as compared
with the same period in 1997 primarily due to decreases in investable funds.
Earnings on real estate rental operations, net decreased for the six and three
month periods ended June 30, 1998, as compared to the same period in 1997
primarily due to an increase in landscaping maintenance and repairs and
maintenance.
During the three months ended June 30, 1998, the Company sold approximately 18
acres of the Center Port property to unaffiliated third parties for
approximately $3.4 million and the company recognized a net gain from the sale
of real estate of approximately $1.0 million. In 1996, the Company sold a 50%
interest in a property included in investment real estate. Since the Company was
the maker on the non-recourse mortgage note on the property and since the
Company maintained a 50% interest in the subject property, the gain on the sale
of approximately $0.6 million was deferred. During the quarter ended June 30,
1998, 50% of the deferred profit of approximately $0.3 million was recognized
upon refinancing the property's mortgage note. The remaining deferred profit
will be recognized when the remaining interest in the property is sold.
In February 1997, the Company sold 12.7 acres of land located in Birmingham,
Alabama to an unaffiliated third party for approximately $149,000 and a net gain
on the sale of approximately $131,000 was recognized during the six months ended
June 30, 1997.
In June 1997 and January 1997, the Company sold 449,805 shares of BBC's Class A
common stock. Net proceeds received from these sales amounted to approximately
$3.7 million and a net gain of approximately $1.3 million was recognized during
the six month period ended June 30, 1997. Net proceeds received from the June
1997 sale amounted to approximately $2.8 million and a net gain of approximately
$1.1 million was recognized during the quarter ended June 30, 1997.
BBC's net income applicable to common shareholders for the six and three month
periods ended June 30, 1998 was $11.6 million and $6.4 million, respectively,
compared to net income of $13.2 million and $6.8 million for the six and three
month periods ended June 30, 1997, respectively. The Company's equity in BBC's
net income for the six and three month periods ended June 30, 1998 was $4.5
million and $2.4 million, respectively, compared to net income of $5.8 million
and $3.0 million for the six and three month periods ended June 30, 1997,
respectively. The decrease in equity in earnings of BBC was due to a decrease in
earnings by BBC and the Company's decreased ownership percentage in BBC. The
Company's ownership in BBC at June 30, 1998 and 1997 was 31.83% and 40.78%,
respectively, of all outstanding BBC common stock. The decrease in ownership was
attributable to BBC's issuance of Class A common stock in a public offering on
November 25, 1997, BBC's issuance of Class A common stock to acquire RBCO and
LTI and the sale of shares of BBC Class A common stock by the Company during
1997. This decrease was partially offset by changes in BBC's outstanding common
stock primarily due to BBC's repurchases of its shares. At June 30, 1998, the
Company's ownership of BBC Class A and B common stock was approximately 26% and
47%, respectively.
Other income decreased for the six months ended June 30, 1998 as compared to the
same period in 1997 primarily due to proceeds received during the 1997 period
relating to a loan from an affiliate which was written-off in prior years.
Increases (decreases) in expenses for the six and three month periods ended June
30, 1998, as compared to the comparable periods in 1997 were as follows (in
thousands):
Six Three
Months Months
------ ------
Interest on subordinated debentures $ (182) (63)
Interest on mortgages payable
and other borrowings (179) (117)
Cost of sale of real estate 2,362 2,379
Expenses related to real estate held
for development and sale, net (17) (21)
Write-down of investment 184 184
Employee compensation and benefits (21) (4)
Occupancy and equipment 1 --
Reversal of provision for litigation 2,272 2,272
General and administrative, net (184) (101)
------- ------
Increase in total cost and expenses $ 4,236 4,529
======= ======
Interest on subordinated debentures decreased for the six and three month
periods ended June 30, 1998 as compared to the same periods in 1997 as a result
of the accrual of interest during 1997 on the delayed funding of the 1989
Exchange settlement liability and the reduction in the amount payable on the
subordinated debentures.
Interest on mortgage payables and other borrowings decreased for six and three
month periods ended June 30, 1998 as compared to the same periods in 1997
primarily due to reduction in borrowings.
Expenses related to real estate held for development and sale, net decreased for
the six and three month periods ended June 30, 1998 as compared to the same
periods in 1997 primarily due to decreased property taxes and professional fees.
This decrease was offset in part by an increase in administrative expenses.
In June 1998, the Company reduced its carrying value on an investment in an
affiliated partnership by $184,000.
Employee compensation and benefits decreased for the six months ended June 30,
1998 as compared to the same period in 1997 primarily due to bonus accruals in
1997.
In connection with the Short vs. Eden, et al. litigation, the Company at
December 31, 1996 had an accrual of approximately $3.0 million included in other
liabilities. The Company in April 1997 disbursed approximately $783,000 and
received a release and satisfaction of judgment. Accordingly, the remaining
accrual of approximately $2.3 million was reversed during the quarter ended June
30, 1997.
General and administrative, net decreased for the six and three month periods
ended June 30, 1998 as compared to the same periods in 1997 primarily due to
decreased legal fees, trustee fees and amortization expense. This decrease was
offset with an increase in intangible taxes.
Financial Condition
BFC's total assets at June 30, 1998 and at December 31, 1997 were $100.1 million
and $98.9 million, respectively. The majority of the difference at June 30, 1998
as compared to December 31, 1997 was due to an increase in investment in BBC.
This increase was offset with decreases in (i) securities available for sale,
(ii) real estate held for development and sale, net, (iii) investment real
estate and (iv) other assets.
Securities available for sale decreased primarily due to the advances for
development and construction costs at the Company's Center Port property. This
decrease in securities available for sale was offset by the availability of
funds provided from the release of the Meador (1989 Exchange) settlement escrow.
Real estate held for development and sale, net decreased primarily due to the
sale of 18 acres of the Company's Center Port property to an unaffiliated third
party. This decrease in real estate held for development and sale, net was
offset with an increase in advances for development and construction costs.
The Company in 1996 sold a 50% interest in a property included in investment
real estate. Since the Company was the maker on the non-recourse mortgage note
on the property, the investment real estate and mortgage note were not removed
from the financial statements. In May 1998, the mortgage note was refinanced and
the Company is no longer the sole maker on the non-recourse mortgage note on the
property. Therefore, the mortgage and investment real estate was removed from
the Company's Consolidated Statements of Financial Condition in 1998.
Investment in BBC increased by $7.9 million due to equity in earnings of BBC of
approximately $4.5 million and the net effect of other BBC capital transactions
of approximately $4.0 million. This increase was offset in part by dividends of
approximately $0.6 million in 1998.
Other assets decreased due to the release from escrow of approximately $2.1
million that had been placed in an escrow account related to the Meador
litigation settlement and payments made in accordance with the terms of the
Exchange litigation settlements. The settlement agreement provided for a release
from escrow of any balances remaining at the end of a specified period and
accordingly, approximately $2.1 million was released from escrow in January
1998. Any balances remaining in the escrow accounts under litigation settlements
will be released to the Company in January 2000.
Market Risk
Market risk is defined as the risk of loss arising from adverse changes in
market valuation which arise from interest rate risk, foreign currency exchange
rate risk, commodity price risk and equity price risk. The Company's primary
market risk is equity risk through its investment in BBC.
Equity Pricing Risk
The Company's primary equity investment is its investment in BBC and while that
investment is carried using the equity method of accounting and changes in
market price of BBC stock would not have a direct impact on the financial
statements, a change in market price would probably have an impact on the
investment community's view of the Company. This investment was entered into for
purposes other than trading purposes. The following table shows changes in the
market value of the Company's investment in BBC at June 30, 1998 based on
percentage changes in market price. Actual future price changes may be different
from the changes identified in the table below (in thousands):
Percent
Change In Market
Market Price Value
------------ -----
20.00% $168,584
10.00% 154,536
0.00% 140,487
(10.00)% 126,438
(20.00)% 112,390
Management does not believe that market risk on other equity instruments would
have a significant impact on the financial condition of the Company.
Below is an analysis of BBC's equity pricing risk at June 30, 1998. The
following table measures changes in the fair value of BBC's trading and
available for sale securities at June 30, 1998 based on percentage changes in
fair value.
Percent Trading Available Securities
Change in Securities for Sale Sold Not Yet
Fair Value Fair Value Fair Value Purchased
---------- ---------- ---------- ---------
20.00% $41,352 $15,409 $4,001
10.00% 37,906 14,125 3,667
0.00% 34,460 12,841 3,334
(10.00)% 31,014 11,557 3,001
(20.00)% 27,568 10,273 2,667
Interest Rate Risk
The majority of BBC's assets and liabilities are monetary in nature subjecting
BBC to significant interest rate risk. BBC has developed a model using vendor
software to quantify its interest rate risk. A sensitivity analysis was
performed measuring BBC's potential gains and losses in net portfolio fair
values of interest rate sensitive instruments at June 30, 1998 resulting from
change in interest rates. The model calculates the net potential gains and
losses in net portfolio fair value by : (i) discounting cash flows from existing
assets, liabilities and off-balance sheet contracts to determine fair values at
June 30, 1998, and (ii) discounting the above expected cash flows based on
instantaneous and parallel shifts in the yield curve to determine fair values at
June 30, 1998. The difference between the fair value calculated in (i) and (ii)
is the potential gains and losses in net portfolio fair values. BBC's management
has made estimates of fair value discount rates that it believes to be
reasonable. However, because there is no quoted market for many of these
financial instruments, BBC's management has no basis to determine whether the
fair value presented would be indicative of the value negotiated in an actual
sale. BanAtlantic's fair value estimates do not consider the tax effect that
would be associated with the disposition of the assets or liabilities at their
fair value estimates.
Below is an analysis of BBC's interest rate risk at June 30, 1998 as calculated
utilizing BBC's model. The table measures changes in net portfolio value for
instantaneous and parallel shifts in the yield curve in 100 basis point
increments up or down (dollars in thousands).
Changes Net Portfolio Dollar
in Rate Value Amount Change
------- ------------ ------
+200 bp $302,912 $ (74,551)
+100 bp 351,677 (25,786)
0 bp 377,463 0
(100) bp 328,873 (48,590)
(200) bp 259,070 (118,393)
Certain assumptions by BBC in assessing the interest rate risk were utilized in
preparing the preceding table. These assumptions relate to interest rates, loan
prepayment rates, deposit decay rates, and market values of certain assets under
various interest rate scenarios. It was also assumed that delinquency rates will
not change as a result of changes in interest rates although there can no
assurance that this will be the case. Even if interest rates change in the
designated increments, there can be no assurance that BBC's assets and
liabilities would perform as indicated in the table above. In addition, a change
in U.S. Treasury rates in the designated amounts, accompanied by a change in the
shape of the yield curve could cause significantly different changes to the fair
values than indicated above. Furthermore, the result of the calculations in the
preceding table are subject to significant deviations based upon actual future
events, including anticipatory and reactive measures which BBC may take in the
future.
Liquidity and Capital Resources
Pursuant to terms of escrow agreements, during January 1998 approximately $3.0
million was released from escrow accounts established to fund payment on
subordinated debentures that had been called. At June 30, 1998, approximately
$2.8 million remained to fund future payments. Any amounts remaining in escrow
in January 2000 will be released to the Company and any future payments on the
called debentures will be paid from the Company's working capital. At June 30,
1998, there was approximately $5.4 million of called but unpresented debentures.
The Company is not obligated to pay interest on subordinated debentures once
they are called. Pursuant to the terms of the debentures, the Company may elect
to defer interest payments on its subordinated debentures if management of the
Company determines in its discretion that the payment of interest would impair
the operations of the Company. Items considered in the decision to defer the
interest payment would include, among other items, the ability to identify which
debentures are held by Holders in Due Course and current operating expenses.
Since December 31, 1991, the Company has deferred interest payments on its
subordinated debentures.
As previously indicated, the Company holds approximately 31.83% of all BBC's
outstanding common stock. Presently, BBC has paid a regular quarterly dividend
since its formation and management of BBC has indicated that it currently
anticipates that it will pay regular quarterly cash dividends on its common
stock. The Company's cash position and its ability to meet its obligations will
in part be dependent on the financial condition of BBC and the payment by BBC of
dividends to its shareholders, including the Company.
At June 30, 1998, BankAtlantic's core, Tier 1 risk-based and total risk-based
capital ratios were 9.27%, 13.94% and 15.18%, respectively. Based on these
capital ratios, BankAtlantic meets the definition of a well-capitalized
institution.
Cash Flows
A summary of the Company's consolidated cash flows is as follows (in thousands):
Six months ended
June 30,
Net cash provided (used) by: 1998 1997
---- ----
Operating activities $ (179) (7,726)
Investing activities 4,390 6,520
Financing activities (3,731) (155)
------- ------
Increase (decrease) in cash and cash equivalents $ 480 (1,361)
======= ======
The primary sources of funds to the Company for the six months ended June 30,
1998 are release of funds from escrow accounts, principal reduction on loan
receivables, proceeds from redemption and maturities of securities available for
sale, revenues from property operations, and dividends from BBC. These funds
were primarily utilized to reduce mortgage payables and other borrowings, to
fund development and construction costs at the Center Port property, to purchase
securities available for sale, and to fund operating expenses and general and
administrative expenses. Funds received from the sale of real estate were
utilized to reduce related mortgage debt.
<PAGE>
PART II - OTHER INFORMATION
Item 1 through 5.
Not applicable
Item 6. Exhibits and Reports on Form 8-K
a) Index to Exhibits:
27.1 Financial data schedule for the six months ended June 30, 1998.
27.2 Restated financial data schedule for the six months ended June 30,
1997.
b) No report on Form 8-K was filed during the three months ended June 30,
1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BFC FINANCIAL CORPORATION
Date: August 12, 1998 By: /s/ Alan B. Levan
----------------------
Alan B. Levan, President
Date: August 12, 1998 By: /s/ Glen R. Gilbert
------------------------
Glen R. Gilbert, Executive Vice President
and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE
30, 1998 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,084
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 912
<INVESTMENTS-CARRYING> 912
<INVESTMENTS-MARKET> 912
<LOANS> 2,563
<ALLOWANCE> 772
<TOTAL-ASSETS> 100,132
<DEPOSITS> 0
<SHORT-TERM> 3,800
<LIABILITIES-OTHER> 773
<LONG-TERM> 14,044
0
0
<COMMON> 79
<OTHER-SE> 59,343
<TOTAL-LIABILITIES-AND-EQUITY> 100,132
<INTEREST-LOAN> 106
<INTEREST-INVEST> 129
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<INTEREST-TOTAL> 235
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<EPS-PRIMARY> 0.35
<EPS-DILUTED> 0.30
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<LOANS-NON> 0
<LOANS-PAST> 0
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<ALLOWANCE-OPEN> 772
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<ALLOWANCE-CLOSE> 772
<ALLOWANCE-DOMESTIC> 772
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE
30, 1997 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 435
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 4,537
<INVESTMENTS-CARRYING> 4,537
<INVESTMENTS-MARKET> 4,537
<LOANS> 2,700
<ALLOWANCE> 772
<TOTAL-ASSETS> 91,105
<DEPOSITS> 0
<SHORT-TERM> 0
<LIABILITIES-OTHER> 586
<LONG-TERM> 27,291
0
0
<COMMON> 22
<OTHER-SE> 46,420
<TOTAL-LIABILITIES-AND-EQUITY> 91,105
<INTEREST-LOAN> 112
<INTEREST-INVEST> 255
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 367
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 1,477
<INTEREST-INCOME-NET> (1,110)
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 1,349
<EXPENSE-OTHER> 1,227
<INCOME-PRETAX> 7,818
<INCOME-PRE-EXTRAORDINARY> 5,281
<EXTRAORDINARY> 781
<CHANGES> 0
<NET-INCOME> 6,062
<EPS-PRIMARY> 0.77
<EPS-DILUTED> 0.71
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 772
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<ALLOWANCE-CLOSE> 772
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